Employers cannot use prior salary, either alone or in combination with other factors, to justify paying different wages to comparable employees doing the same work under the Equal Pay Act, according to the U.S. Court of Appeals for the Ninth Circuit. The en banc decision in Rizo v. Yovino overturns prior Ninth Circuit precedent on the issue and creates a circuit split. ABA Section of Litigation leaders view the Ninth Circuit’s decision as part of a growing national trend prohibiting employers from considering prior salary to determine initial pay.

Pay Disparity Based on Prior Salary Leads to Lawsuit

The conflict in Rizo began when Aileen Rizo, a math consultant for the Fresno County Office of Education, learned that she received a lower starting salary than comparable male employees for doing the same work. In response to Rizo’s internal complaint about the pay disparity, the county stated that all salaries were determined by taking a new hire’s prior salary and adding 5 percent. The county claimed that female management employees over the past 25 years had higher starting salaries than their male counterparts, which Rizo disputed.

Rizo then sued Jim Yovino in his official capacity as the superintendent of the Fresno County Office of Education in the U.S. District Court for the Eastern District of California for, among other claims, violating the Equal Pay Act. The act includes four statutory exceptions that operate as affirmative defenses to discrimination claims: (i) a seniority system; (ii) a merit system; (iii) a system that measures earnings by quantity and quality of production; or (iv) a differential based on any factor other than sex. The county moved for summary judgment, asserting that use of Rizo’s prior salary was permitted under the “factor other than sex” exception.

The district court denied summary judgment, finding that a pay structure based exclusively on prior wages perpetuates a discriminatory wage disparity between men and women. Recognizing its ruling conflicted with controlling Ninth Circuit precedent in Kouba v. Allstate Insurance Co., which held such a pay structure to be permissible, the district court certified the legal question of whether an employer subject to the Equal Pay Act may rely on prior salary alone when setting an employee’s starting salary.

Prior Decision on use of Prior Salary Overruled

On appeal to the Ninth Circuit, a three-judge panel vacated the denial of summary judgment and remanded to the district court. Relying on Kouba, the Ninth Circuit initially held that use of prior salary was a proper defense under the Equal Pay Act’s “factor other than sex” exception.

An en banc panel subsequently reversed the smaller panel’s decision and overturned Kouba, observing that an employer’s reliance on past wages perpetuated the very discrimination that the Equal Pay Act was enacted to eradicate. Though the Ninth Circuit judges were unanimous in that result, they did not agree on the rationale.

The majority reasoned that the “any factor other than sex” exception applied only to legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance. Relying on principles of statutory interpretation and legislative history, the majority observed that three of the act’s exceptions are reserved for systems based on seniority, merit, and productivity, which in turn relate to an employee’s job qualifications, performance, or experience. Application of the catchall “any factor other than sex” defense should therefore also be confined to circumstances similarly based on the employee’s skills. The majority further explained that the catchall exception could not justify use of prior salary because when the act was enacted in 1963, prior salaries would have reflected a discriminatory marketplace.

In so holding, the majority also relied on decisions from the United States Courts of Appeals for the Second and Eleventh Circuits. For example, in Aldrich v. Randolph Central School Dis-trict, the Second Circuit held that an employer could justify a wage differential based on the catchall exception only if the employer could establish that the difference related to job performance. Similarly, in Glenn v. General Motors Corp., the Eleventh Circuit concluded that the “factor other than sex” exception applied when the disparity results from unique characteristics of the same job or from an individual’s experience, training, or ability.

Potential Problems with Banning Consideration of Prior Pay

By contrast, the concurring opinion authored by Judge McKeown and joined by Judge Murguia stated that the majority went too far in holding that any consideration of prior pay is impermissible under the Equal Pay Act. Likewise, a second concurrence penned by Judge Callahan and joined by Judge Tallman opined that by disallowing consideration of prior salary, the majority’s holding ignored business realities and could potentially hinder the goal of equal pay for equal work. In the third and final concurrence, Judge Watford would have held that past pay can constitute a defense under the “factor other than sex” exception, but only if the employee’s past pay is not itself a reflection of sex discrimination.

Proceed with Caution

ABA leaders agree that employers should be cautious in requesting prior salary history following the Rizo ruling. “The trend in a growing number of states and cities is to prohibit employers from asking for salary history on the theory that use of salary history in setting pay levels tends to perpetuate pay discrimination against women,” observes Robin E. Shea, Winston-Salem, NC, member of the ABA Section of Labor & Employment Law. Practitioners should endeavor to quickly comply with the new ruling, advises Shea. “Any employer in the Ninth Circuit, or one of the jurisdictions that has a state or local ban on salary history questions, should not ask for salary history, period,” she cautions. “But even if the employer is not in one of those jurisdictions, I would advise them to be very careful in asking for that information and in using it once obtained,” Shea adds.

Practitioners and employers should review all hiring practices and procedures that may involve requesting prior salary, according to Section of Litigation leaders. “The documents used in the recruiting and hiring process should be reviewed to eliminate any reference to prior salary. Managers and others involved in hiring should be trained to avoid any inquiry about or consideration of prior salary and trained regarding the appropriate factors that they can consider instead,” advises Trish Higgins, Sacramento, CA, chair of the Wage and Hour Subcommittee of the Section’s Employment & Labor Relations Law Committee.

Will Interpretation of the “Factor other than Sex” Prong Head to the U.S. Supreme Court?

ABA leaders are split as to whether this decision will have the intended effect of promoting equal pay. Some leaders believe that this decision will result in employers taking a more deliberative approach to salary determination. “This decision should force employers to do more homework as it relates to appropriate salaries in the labor market for the set of skills and positions that they are trying to fill. No longer can an employer rely on a simple formula or consider only prior salary in making decisions,” says Jeremy J. Guinta, Los Angeles, CA, chair of the Administrative Subcommittee of the Section’s Employment & Labor Relations Law Committee.

Others believe the decision may close the wage gap to some extent but could potentially harm those it intended to help. “I do think the Ninth Circuit’s holding that salary history is ‘inherently discriminatory’ goes too far and could even have an adverse effect on women in some circumstances. I think it would make more sense to allow employers to request and consider salary history as long as the information is not used in a discriminatory manner,” opines Shea.

Leaders believe that the Ninth Circuit’s interpretation of the catchall prong causes a circuit split, which means the U.S. Supreme Court may ultimately decide the issue. “The Rizo decision is squarely at odds with the Seventh Circuit’s ruling in Wernsing v. Department of Human Services that salary history, even standing alone, is a ‘factor other than sex’ under the EPA, and also the rulings of several circuits that salary history may be a ‘factor other than sex’ if considered along with other factors,” explains Higgins. “Given this circuit split, Rizo is a likely candidate for Supreme Court review,” she predicts.